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Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. For example, the Digi International Inc. (NASDAQ:DGII) share price is up 85% in the last year, clearly besting the market return of around 39% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Looking back further, the stock price is 49% higher than it was three years ago.

See our latest analysis for Digi International

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year Digi International grew its earnings per share (EPS) by 38%. This EPS growth is significantly lower than the 85% increase in the share price. This indicates that the market is now more optimistic about the stock. The fairly generous P/E ratio of 67.14 also points to this optimism.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth

It is of course excellent to see how Digi International has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Digi International stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We’re pleased to report that Digi International shareholders have received a total shareholder return of 85% over one year. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It’s always interesting to track share price performance over the longer term. But to understand Digi International better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Digi International you should know about.

But note: Digi International may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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